Startup Takeaways: B2B Software Is Having A Moment And Investors Say It’s A Good Time To Get On Board

If you are a startup eyeing the business-to-business software sector, it might be a good time to jump in.

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We spoke with a handful of investors to get some insight into this space: Tomy Han, a principal at Volition Capital; David Blumberg, founder and managing partner of Blumberg Capital; and Richard Wong, general partner at Accel.

From their point of view, the hottest sectors within the B2B software industry look like:

• Security: For everyone on a cellphone or laptop;
• Supply chain visibility: How people buy has shifted to online;
• Health care: Especially telemedicine, with attention on COVID-19, but also helping the population get ongoing care and bridging that gap; and
• Collaboration and virtual workforce: Connecting everyone who is working remotely

Integrate functionalities

“The virtual environment has created an interesting scenario,” Han of Volition Capital told Crunchbase News. “Mid-market enterprises and big companies are trying to be more productive, and that move has roared into a virtual workforce.”

It used to be that Silicon Valley was the only place for an entrepreneur to start a business easily, but now it can be done anywhere in the world—hire virtually, collaborate and sell virtually, he said. In the meantime, startup costs are also decreasing as is the ability to develop cloud-based products

There are two types of potential business ideas that play into the current environment according to Han. Namely, how to help existing customers operate better and how to deliver services to customers. One way to decipher if a product or service is relevant is to seek out beta testers. It’s also a great way to get new customers.

“I’m not sure people want strangers coming into their house, so you have to look at how we digitize it,” Han said. “Now is the time to do that.”

One trend within the B2B software space is integrating functionalities, thus appealing to enterprises that only have to buy one subscription versus five, he said. That is an area that will take a while to see the effects, but Han thinks it will be a benefit to train on only one platform.

Another trend is creating the “next-level” versions of tools, taking into account the workflow issues of the customers a startup is trying to fix. For example, in the supply chain vertical, many companies are still using spreadsheets to keep track of their workflow approvals and billing.

“This solves workflow problems that could be a win,” Han said. “Necessity is the mother of all invention, so five or 10 years down the road we will see a lot of opportunities for entrepreneurs to tackle what came sooner, so it is a good time to start a company.”

‘Era of the virtual enterprise’

Blumberg of Blumberg Capital called this environment “a catalyst moment.” He is seeing a movement toward digital, mobile and virtual that he and his colleagues have coined, “The Era of The Virtual Enterprise.”

“It’s not just work from home, it is the ability to connect, communicate, coordinate and optimize in a flexible manner,” Blumberg said. “It is often around the clock because the sun never sets on the empire. Technology stands on the great shoulders of people who built the internet, and now is the time to take advantage of it.”

One minor example, Blumberg used to carry a wallet. Now he never pays with cash, but rather with his phone. Not having a wallet has been “liberating,” he said.

Blumberg is following trends, such as big data, artificial intelligence and workflow automation, all aspects he said are transforming traditional industries. His firm has made five investments in those areas since the beginning of the year—three in health care and two in supply chain.

“The idea is that people are more willing to adopt new technology when faced with change,” he said. “Most of the time, the new technology platform, for example, will be lighter weight, faster, intelligent and easy to use. There are a few downsides, such as more vectors for hacking, but generally, a virtual world will be good for everyone.”

Ultimately, he sees digital bringing everyone together: New technology based on AI and big data, coupled with the right user interface, will level the playing field. In addition, we will see enterprise software extending to small and medium-sized businesses and then to mobile apps, thus extending it to all, Blumberg added.

Startups can now sell globally, immediately

Meanwhile, the most visible revolution in technology includes consumer-facing companies, such as Facebook and TikTok, said Wong of Accel.

Going back 20 years, few end-consumers had access to a smartphone. Today most everyone has one and therefore can be a consumer. Startups can sell on a global basis immediately, whereas before they could only sell regionally, he added.

“If you go back 10 years ago, there were a small handful of $5 billion to $10 billion software companies,” Wong said. “Today, those numbers are three or four times more, showing how powerful and large they have gotten.”

There were already multiple factors that allowed valuable software companies to be built, but COVID-19 and remote workforces have helped (some) software businesses do well.

The financial evidence is in the rising stock prices of tech startups, Wong said.

He sees companies of every size emerging and growing into a rich ecosystem, akin to the early days of mobile. However, he also expects there to be initial public offerings, mergers and acquisitions, or companies that go under.

“It will take the next five to seven years to see how it shakes out,” Wong said. “However, it is not too late to start a company. There are many opportunities, but it would be better if you had a product now.”

Illustration: Li-Anne Dias